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GENERAL MILLS HIKES PRICES, CITES COSTS

Citing increased costs of packaging and grain, General Mills last week boosted cereal prices 2.9%, setting back its effort to reclaim market share.

But General Mills said it won't return to heavy promotion. In April 1994, the cereal maker cut shelf prices of its most popular cereals by as much as 11%, and reduced the amount and value of coupons in an effort to boost profits (AA, April 11, et seq.).

The new 2.9% price hike still leaves General Mills cereal prices below those of early 1994, before the company slashed prices of all its cereals an average 6%.

The increase underscores Big G's effort to get away from discount promotions, said Michael Mauboussin, an analyst for CS First Boston, New York.

"Fundamentally, their strategy has been to deliver value to the consumer in a more direct fashion .... They indicated [from the beginning] that if input costs escalated, they would raise prices," he said. The move echoes a price increase announced by private-label cereal maker Ralcorp Holdings several weeks ago.

General Mills is acting to offset "genuine, legitimate costs," said Mr. Mauboussin, who added that the increase is so minimal retailers probably will absorb the extra costs themselves.

Jeff Hill, a consultant with Meridian Consulting Group, Westport, Conn., said General Mills had been maintaining its price reduction strategy primarily to compete with private labels, and Ralcorp's increase made this an opportune time for the company to "make sense of [its] key cereal business."

"General Mills wants its share back, but as they're increasing prices, Kellogg is not, and from what we've seen, Post is not and Quaker Oats is not," said Chris Jakubic, an analyst with Salomon Bros., New York. "It's going to be difficult for [General Mills] to achieve the volume growth they have targeted."

General Mills has been struggling to regain share in the $8.2 billion ready-to-eat cereal market. The No. 2 cereal maker saw an 8.1% decline to $2.1 billion for the year ended April 2, Information Resources Inc. reported, attributed to promotions reductions and lack of new products. That left General Mills with a 25.7% share, down from 29% in 1993.